22. In the national accounts, a drawing down of inventories counts as a. consumption. b. depreciation. c. disinvestment. d. investment. e. saving.

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1 CHAPTER 20 These are some practice questions for CHAPTER 20. Each question should have a single answer. But be careful. There may be errors in the answer key! 19. Total value added in an economy is equal to the value of a. all final goods produced. b. all final and intermediate goods produced. c. all inputs and outputs in the economy. d. all profits of all firms in the economy. e. the sum of the value of primary, intermediate and final goods. 20. The value of intermediate products a. should always be counted as part of GDP in the expenditure approach. b. should be subtracted from the value of final goods in determining value added. c. should be added to the value of other inputs in determining a firm's contribution to GDP. d. must equal the value added by the firm. e. is counted as factor income in the calculation of GDP from the income side. 21. GDP from the expenditure side is equal to the sum of a. Ca + Ia + Ga + (IMa - Xa). b. Ca + Ia + Ga - net exports. c. Ca + Ia + Ga + (Xa - IMa). d. Ca + Ia + Ga. e. Ca + Ia + net exports. 22. In the national accounts, a drawing down of inventories counts as a. consumption. b. depreciation. c. disinvestment. d. investment. e. saving.

2 23. Which of the following statements concerning investment and investment goods is true? a. An accumulation of inventories does not count as current investment. b. The total amount of capital goods in a country is called depreciation. c. Net investment is equal to gross investment plus depreciation. d. The capital consumption allowance refers to funds to maintain the existing stock of capital. e. Housing construction is counted as consumption expenditure rather than investment expenditure. 24. Which of the following describes the investment component of GDP, as calculated from the expenditure side? a. net investment b. net investment minus depreciation c. gross investment plus depreciation d. net investment plus depreciation e. fixed investment minus depreciation 25. Transfer payments are not included in the government component in the calculation of GDP because a. they do not represent a payment for a good or a service. b. they are not counted as income by any economic agent. c. they do not generate additional income in the economy. d. it is difficult to assess the market value of a transfer payment. e. they are small enough to ignore when computing the national accounts. 26. To determine the market value of a firm's output, it is necessary to a. subtract indirect taxes from the firm's income. b. subtract subsidies from the firm's income. c. add indirect taxes to the firm's income. d. add subsidies to the firm's income. 27. Gross domestic product is the sum of factor incomes indirect business taxes, net of subsidies, depreciation. a. plus; minus b. minus; plus c. plus; plus d. minus; minus

3 28. One major reason that GDP is an inaccurate measure of quality of life is that a. people frequently buy things they do not want. b. it does not include the value of leisure. c. it is statistically very inaccurate. d. it cannot be adjusted for changes in prices. e. all of the above. 29. Real GDP is equivalent to a. the money value of all goods and services produced in an economy per year plus imports. b. the market value of all goods and services produced in an economy per year. c. personal disposable income plus depreciation. d. the value of all goods and services produced in an economy per year deflated for price changes. e. the nominal value of GNP multiplied by the GDP deflator. The table below shows total output for an economy over 2 years Price Quantity Good A $ units Good B $ units Good C $ units 1999 Price Quantity Good A $ units Good B $ units Good C $ units TABLE Refer to Table The implicit GDP deflator in 1999 was approximately a b c d e. 203.

4 The table below shows total output for an economy over 2 years Price Quantity Good A $ units Good B $ units Good C $ units 1999 Price Quantity Good A $ units Good B $ units Good C $ units TABLE Refer to Table The nominal Gross Domestic Product in 1999 was a. $5520. b. $5280. c. $4800. d. $3000. e. $840. The table below shows total output for an economy over 2 years. Implicit Year Money GDP* Deflator Real GDP* *************** 1995 $ 105 $760, $820, $ 1997 $855,000 $800,000 *millions of dollars TABLE Refer to Table The real GDP in 1996, expressed in 1992 dollars (base year), was a. $900,000. b. $869,000. c. $800,000. d. $798,000. e. $773,585.

5 33. Refer to Table The nominal growth rate from 1996 to 1997 was a percent. b percent. c percent. d percent. e percent. 34. Refer to the graph below, Figure Nominal GDP increased by approximately percent between 1985 and a. 20 b. 40 c. 60 d. 80 e. 100

6 35. Refer to the graph below, Figure The implicit GDP deflator in 1998 is approximately a. 90. b c d e Production in the underground economy is omitted from measured GDP because it a. is unreported. b. is illegal. c. is unimportant. d. involves mainly transfer payments. e. involves no payments for current final production.

7 19. a 20. b 21. c 22. c 23. d 24. d 25. a 26. b 27. c 28. b 29. d 30. c 31. a 32. e 33. b 34. b 35. c 36. a

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